Washington Report: Bundled Together

It's no secret that Democrats have pharma high on their hit list. The now-controlling congressional party promises to delve critically into industry profits and excess influence over White House policies. But even Republicans are making waves, over whether government drug-pricing policies also raise concerns about drug safety and treatment practices.

In his final day as chairman of the powerful House Ways & Means Committee, former Rep. Bill Thomas (R-CA) held a hearing on Medicare payments for drugs to treat patients with kidney disease. Medicare spends $2 billion a year on Amgen's Epogen (epoetin or EPO), and Thomas charged at the December hearing that the government's payment formula encourages dialysis centers to overprescribe the drug to costly and possibly unsafe levels. Thomas noted that Medicare pays more than private purchasers or the Veterans Administration for EPO, and threatened that Congress would fix the situation if the Centers for Medicare and Medicaid Services (CMS) fails to respond quickly. Rep. Pete Stark (D-CA), now chairman of the Ways & Means Health subcommittee, agreed with Thomas, adding that with Medicare spending billions on EPO, "the government should get a better deal." But he doubted this would occur with a "cozy club" of interest groups overseeing EPO reimbursement.

Perverse Incentives

Rhetoric aside, the hearing is noteworthy because it raised many of the hot-button reimbursement issues making headlines. The EPO issue arises because Medicare permits dialysis clinics to purchase the drug separately, instead of as part of a composite rate for end-stage renal disease (ESRD) care. Because Medicare reimbursement for specific drugs often is higher than actual acquisition cost for the 13 categories of doctor-administered drugs covered by Part B, this buy-and-bill policy encourages providers to boost revenues through what Thomas called "out-of-control dosing."

The EPO payment policy also has generated safety concerns. Medical journals have presented evidence recently that too-high EPO dosing may lead to heart problems, and even death. Thomas complained that Medicare reimbursement does not mesh with FDA labeling that advises physicians to start with a low EPO dose and titrate up to an appropriate hemoglobin level. One explanation is that kidney specialists argue about recommended blood levels and how to get there, making it difficult for CMS to set a tight coverage policy.

Backing Bundling

A good way to fix this problem is to switch to a bundled reimbursement policy for dialysis services, said David Walker, head of the Government Accountability Office (GAO). Paying a set combined price for treatments and drugs would reduce incentives to provide more medication than clinically necessary, and would give clinicians more flexibility to use other therapies and techniques to boost patient hemoglobin levels. The Medicare Modernization Act (MMA) of 2003 requires CMS to develop a bundled payment policy for dialysis clinics, but the agency is way behind schedule in researching options and testing best methods.

Devising bundled rates, of course, is not that simple. Providers point out that any composite rate for dialysis services needs to risk adjust for differences in the cost of caring for sicker patients, and that regular updates are necessary to reflect drug cost increases and keep providers in the program. Amgen officials, who are happy with the current payment arrangement, emphasize that any shift to a bundled scheme needs appropriate case mix adjusters and quality safeguards.

Despite all the noise, it may be a while before there is any major change in EPO reimbursement. CMS promised to complete its overdue report on a fully bundled system by summer and to test the policy in a pilot program. Amgen wants a "rigorous review" of all the data before making any revisions, and even Democrats may agree to hold off until the report comes out.

More competition, however, might have an impact. Thomas suggested that Amgen's monopoly in the ESRD market keeps prices high. Epogen is the only product covered by Medicare for anemia treatment of ESRD patients, but Roche recently filed an application for a longer-acting anemia drug, Micera (CERA), that could enter the market next year.